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Downsizing Blog

In a speech on Friday, outgoing Fed Chairman Ben Bernanke defended his record of extraordinary policy interventions. One of his framing techniques is to claim that extreme monetary efforts were needed in the last few years—from his Keynesian perspective—to offset “contractionary” fiscal policy.

Republican Senator Dean Heller of Nevada has co-sponsored a bill to revive the emergency unemployment insurance program. Senator Harry Reid is pleased as punch that Heller is breaking with the “tea party folks” on the issue.

Federal Reserve chairmen are famous for their opaque but sophisticated-sounding comments designed to make it appear that they know more about the shape of the economy than they really do. But outgoing chairman Ben Bernanke’s direct and transparent assertions yesterday about fiscal policy also left me scratching my head.

Last fiscal year Uncle Sam had some budget good news. After running $1 trillion-plus deficits four years in a row, Washington had to borrow “just” $680 billion in 2013. True, that was the fifth highest deficit in history, 50 percent greater than the pre-financial crash record. But it’s only the taxpayers’ money, so what’s the big deal?

In the Wall Street Journal, Peggy Noonan calls the Ryan-Murray budget deal a “step in the right direction,” which echoes a claim by Rep. Paul Ryan. She says the deal “goes in the right general direction, not the wrong one.” But how could a deal composed of spending and revenue increases possibly be the right direction when the government is already far too large?

The Ryan-Murray budget deal is remarkably bad when you look at the details. If the Republican Party is supposed to be the fiscally conservative party, there is virtually nothing Republican in the agreement. The Democrats could have written the whole thing themselves. It raises spending and taxes, and reduces the deficit only in a jury-rigged scorekeeping kind of a way that won’t actually be realized.